How Desperate Can Texas Get for Construction Labor? Look at Houston After Hurricane Harvey

Post-storm Houston has become a kind of case study on the effects of a construction labor shortage in its most extreme form.

by Jill Cowan, The Dallas Morning News
/
August 20, 2018

Flood waters have risen into the Lakes on Eldridge North neighborhood near the Addicks Reservoir West Houston, Texas on Wednesday, Aug. 30, 2017.
TNS

(TNS) — Drive through Meyerland, the established Houston neighborhood of well-kept ranch homes on inviting lots, and you’d be forgiven for thinking business has been good for Dan Bawden since Hurricane Harvey swept through town a year ago.

Construction vans like his line the calm residential streets not far from the Brays Bayou. Workers painted one house while chain link fenced off a home not far away that was still just wood frame.

But Bawden, a longtime Houstonian and owner of a general contracting firm specializing in remodel jobs that keep older residents in their homes, said the storm has been the opposite of the financial boon people seemed to expect.

“It’s surprisingly brought up more problems than it brought advantages and profit,” he said recently on a short tour of the community he also calls home. “We helped a lot of people — as many as we could of our existing clients — but we looked at that later and realized we really didn’t make much money on those jobs.”

The main reason, experts say, isn’t new: A punishing construction labor shortage that has plagued builders in fast-growing Texas for years and has sent industry leaders scrambling for fixes, including pleading for immigration reform to quickly replenish an aging workforce.

Thanks to Harvey, observers said, builders across the state are feeling an even tighter squeeze. And post-storm Houston has become a kind of case study on the effects of a construction labor shortage in its most extreme form.

“After Hurricane Harvey hit, a lot of our builders and remodelers were contacted by customers and had to turn away work,” said Casey Morgan, CEO of the Greater Houston Builders Association. “The storm just exacerbated the problem we were already experiencing.”

To build or to rebuild?

Experts predicted that Texas would feel the kind of economic mini-boom that follows major catastrophes — rebuilding requires spending lots of money, after all — buoyed by the state’s steady momentum in recent years.

They said the Houston metro area in particular would be able to bounce back.

And in many respects, it has. Job growth is humming with the help of a turnaround in the energy industry. The region’s suburbs have continued to sprawl.

But for the people actually doing the time-consuming, physical work of rebuilding thousands of homes hit by the storm, that consistent demand for new houses has only compounded the problem.

“The other part of the labor shortage is that Houston’s housing market is still going pretty strong in general,” said James Gaines, chief economist with the Texas A&M University’s Real Estate Center. “It’s going to prolong the recovery process and probably make it more expensive.”

In Dallas-Fort Worth, which added the most new residents of any metro area last year, builders say things are getting worse, not better — despite efforts to raise awareness of the issue with legislators and to show school kids that they can hammer out solid livings building houses.

“We did a study in March 2017, before the storm and we were about 20,000 construction workers short in the Dallas-Fort Worth area,” said Phil Crone, executive officer of the Dallas Builders Association. “We redid the same study in the spring of 2018 and the number nearly knocked me off my feet.”

The region, the association found, was 38,500 workers short.

Out of reach

Crone estimated that even in North Texas, the labor shortage is to blame for an average of about two months delay in building a new home and $6,000 in extra costs. That’s up from about $4,000 just before the storm.

As a result, the region’s housing affordability has been taking a hit. Gaines’ Real Estate Center has previously estimated that for every $1,000 added to the cost of a house, tens of thousands of families are priced out, and that number gets higher for families looking for less-expensive housing.

Still, experts say the Harvey-driven shortage has been most transformative — and not in a good way — for Houston’s construction ecosystem.

Bawden, who started his firm Legal Eagle Contractors more than three decades ago, laid out the wide-ranging ripple effects.

For one thing, just scheduling and prioritizing jobs becomes a hassle when your usual subcontractors are juggling magnitudes more demand than usual. Immediately after the storm, he said, his team of eight employees was fielding 50 calls a day.

“We had to figure out right away how to triage this,” he said. “We prioritized our customers first who were older or have medical issues that needed kind of emergency assistance. The second level was people who we were currently working for and then they flooded.”

Many contractors, he said, have taken to simply turning down any jobs that don’t meet a certain cost threshold — a practice that hurts lower income homeowners or residents whose houses didn’t sustain significant damage.

But that's just the beginning of the process for builders.

Once Bawden takes on a job and manages to cobble together a sufficient roster of subcontractors — who already must be paid more as a result of the demand, increasing the project's overall cost — there’s a risk that some of them might not know what they’re doing.

Experts said that an influx of less-than-qualified workers looking to capitalize on residents’ desperation often comes on the heels of a natural disaster. When they head into a market already short on labor, the risk and reward are amplified.

Rising costs

Bawden said that when he has to make do with bad workers, he eats the cost of redoing tasks that already can take months, because he can’t pass the expense on to clients.

Over the past year, he estimated he’s paid $77,000 to redo work, from crooked framing to bad tiling. He hopes to hit $3 million in total annual revenue this year.

Then, when jobs take longer, side costs also go up.

He was proud to show off a work site where his company, Legal Eagle Contractors, was heading the remodel of a sweet yellow shiplap house near the West University neighborhood.

Last summer, Hope Lum and her family had been planning to refresh the ground floor bathroom and kitchen of the sturdy home built in 1938. Then Harvey hit.

“We were like, we’ve got to get our name on the list,” she said on a recent afternoon. “I felt guilty just two or three days after Harvey filling out forms online.”

But the house has survived two major hurricanes since the Lums bought the house about 13 years ago — something that gives Lum peace. And she and her husband plan to raise their children there.

In any case, the project was delayed by six months.

Rather than move out for the shorter time the project might’ve taken in a different labor environment, the family has been living on the upper floor of the house while the remodel takes place downstairs.

As their mother talked, the kids bolted through the unfinished living room on a strip of carpet leading from the stairs to the kitchen. They squeezed through a zippered opening in a plastic sheet separating the spaces to sit at the table.

All those extra safety accommodations, Bawden said, add costs to the job.

Finally, he said that much of the money flowing into the building market now is coming from insurance — but those payouts typically don’t fully cover remodeling work and they’re often slow. That means that he’s also had to spend extra uncompensated hours negotiating with insurance adjusters and more carefully detailing his work.

'Never flooded'

Gaines, the TAMU economist, said that beyond the labor shortage, Houston’s residential real estate market is facing a tough road because the Harvey-borne flooding proved to be so unpredictable.

“One of the things that’s starting to register in the marketplace is that the flooding was spotty,” he said. “Sections were hit very hard and sections right across the street got nothing.”

Which means that it’s hard to limit market effects to just certain neighborhoods. Million-dollar homes and lower income apartments alike were devastated by Harvey.

For each family, there are difficult questions about whether to sell, build a house from scratch or take on expensive renovations. Lifting a house by essentially pushing it up with layers of concrete costs hundreds of thousands of dollars, not including the thousands of dollars in repairs to the house itself.

And if selling is the best option, it’s hard to convince buyers that a house will be safe in the next big flood. Realtors have taken to advertising, “Never Flooded,” on for sale signs, but Gaines said anecdotally he’s heard that just helps generate interest — it doesn’t command a premium.

Back in Meyerland, Bawden pointed out houses whose new tall concrete foundations had been tastefully incorporated into the homes’ overall designs — longtime family homes that, he hopes, will be safe above the water next time the bayou overflows.

But he also noted that many residents, particularly older ones, have become exhausted by the long timelines and eye-popping price tags for repairs, renovations or complete rebuilds.

“A lot of people haven’t even made the decision yet,” Bawden said. “They’ve gotten used to living somewhere else and they don’t want to think about it anymore.”

With many educational organizations shifting their entire schedules to distance learning tools or full virtual environments indefinitely, never has the statement “we are all in this together” been more poignant.